Am I personally liable for my company's tax debt? A New Zealand director's guide

Most New Zealand directors set up a company partly for protection. If the business fails, the company’s debts are the company’s, not yours. That principle is real, and it covers ordinary tax debt. But it has edges, and tax debt sits close to several of them. This guide walks through each way a company’s tax problem can become a director’s personal problem, what liquidation does and doesn’t change, and what you can do now to protect yourself. It’s general information, not legal advice; if you’re worried about your own position, talk to a lawyer.

What does limited liability actually protect?

A company is a separate legal person. When it owes GST or income tax, IRD’s claim is against the company. As a director, you aren’t automatically liable for that debt just because you run the company. If the company is liquidated, unpaid company tax is generally written off as part of the process.

That’s the baseline. The exceptions below are where directors get caught.

Exception 1: PAYE and other employer deductions

PAYE, KiwiSaver deductions and student loan deductions are taken from employees’ pay and held for IRD. IRD’s March 2026 media release was direct: making deductions and failing to pay them “carries a maximum sentence of up to 5 years in prison”, and “the director of a company who decides that the company will not pay the deductions to Inland Revenue may be prosecuted for the company’s failure to pay” (IRD).

Penalties are also steep: 10% on unpaid deductions and another 10% for each further month, reduced to 5% once you pay or arrange. If PAYE is behind, clear it first. See PAYE arrears.

Exception 2: directors’ duties when the company is struggling

Two sections of the Companies Act matter most:

• Section 135, reckless trading: a director mustn’t let the company trade in a manner that exposes its creditors to a substantial risk of serious loss.
• Section 136, obligations: a director shouldn’t commit the company to an obligation without reasonable grounds for thinking the company will be able to meet it when it falls due.

When a liquidator investigates, these are the duties most often examined. The Supreme Court’s 2023 Mainzeal decision found directors liable for large sums under them, and the Law Commission is reviewing directors’ duties, with work expected to report in 2027 (University of Auckland; MBIE).

What does that mean in practice for a company with IRD debt? Make decisions deliberately, record them, take advice and act on it. Continuing to trade while hoping things improve, with no plan for the tax, is where risk builds.

Exception 3: asset stripping

Section HD 15 of the Income Tax Act can make people personally liable where a company is stripped of assets so that it can’t pay its tax (IRD Tax Technical). The safe rule is simple: don’t move money or assets out of a company that owes IRD, whether by sale at undervalue, unusual payments to related parties or transfers to a new entity.

Worried your company’s tax debt is becoming personal? Clearing it removes most of the pressure. See if funding fits, with no credit check to enquire.

Exception 4: personal guarantees

IRD doesn’t usually hold personal guarantees for tax, but banks, finance companies, landlords and suppliers often do. If the company can’t pay a guaranteed debt, the guarantor must. The Insolvency and Trustee Service notes that when a company is liquidated, “the guarantor will have to repay the creditor”, and personal insolvency may follow (insolvency.govt.nz). For many directors, this is the biggest personal exposure, and it’s triggered by liquidation, not removed by it.

Exception 5: the shareholder current account

If you’ve drawn more from the company than you’ve put in or been paid as salary and dividends, your current account is overdrawn, and that money is owed to the company. A liquidator checks whether directors or shareholders owe the company money and can demand it. Since the Taxation (Budget Measures) Act 2026, shareholder loans still owed six months after a company is removed from the register can become taxable income, for companies removed on or after 4 December 2025 (IRD Tax Policy). See guarantees and current accounts.

Exception 6: the phoenix rules

A director of a liquidated company is generally restricted for five years from being involved with a company using the same or a substantially similar name, unless an exception applies. Breaches can bring criminal penalties and personal liability for the new company’s debts. See phoenix rules.

What does liquidation clear, and what doesn’t it?

Item	Cleared by liquidation?
Company GST and income tax	Generally, as a company debt
Past PAYE decisions	No; prosecution risk relates to the decision
Breaches of director duties	No; a liquidator can investigate and pursue
Asset stripping liability	No
Personal guarantees	No; often triggered
Overdrawn current account	No; can be demanded, and may become taxable after removal
Phoenix restrictions	No; they begin

Can IRD take my house or KiwiSaver?

People often search these questions. For ordinary company tax, IRD’s claim is against the company, so your house is more commonly at risk through a personal guarantee or security you’ve given to another lender, or through personal liability under one of the exceptions above. We couldn’t confirm specific rules on KiwiSaver from an official source for company tax debt, so we don’t make claims about it; ask a lawyer about your own situation. IRD’s arrest-at-the-border powers relate to student loans, not business tax debt.

What should directors do now?

1. Pay current PAYE on time, every month, and clear any arrears first.
2. Get a viability view from your accountant.
3. Hold a board discussion and record decisions and the advice relied on.
4. Don’t move assets or start a new company to take over the business.
5. Choose a route for the IRD debt: an instalment arrangement, a loan, or both.
6. List your guarantees and check your current account.
7. Take legal advice if insolvency is possible.

What about directors who aren’t involved day to day?

Many small companies have a second director who isn’t hands-on: a spouse, a parent or a passive investor. Being a non-executive or “sleeping” director doesn’t switch off the duties. All directors are expected to understand the company’s financial position well enough to meet their obligations, including whether tax is being paid. If you’re a director in name but not in practice, ask for the myIR statement, the bank balances and the current account position now. If you can’t get them, that itself is a problem to resolve, possibly by resigning properly with advice rather than staying on the register without information.

How should a board deal with tax debt?

Treat it as a standing agenda item until it’s resolved. A short, regular record helps both the business and the directors:

• the current IRD balance by tax type, and what’s changed since last time;
• whether current GST and PAYE are being paid on time;
• the plan for the arrears, and progress against it;
• the advice received from accountants, lawyers or funders; and
• the decision taken, with reasons.

That record isn’t bureaucracy for its own sake. If a liquidator, a court or IRD later looks at what happened, notes made at the time showing that directors took the problem seriously, sought advice and acted reasonably carry real weight.

When should you get legal advice?

Sooner than most directors do. Signs it’s time: PAYE has been unpaid for more than a month, the company can’t pay its debts as they fall due, IRD has issued a statutory demand or liquidation application, someone has suggested moving the business to a new company, or you’re being asked to sign a personal guarantee to keep things going. A short consultation at that point is far cheaper than defending decisions later.

Where does funding fit?

Clearing the IRD debt is often the most direct way to reduce personal exposure: PAYE arrears are paid, the company stops accruing tax debt it can’t meet, and the pressure toward liquidation, with its investigations and guarantee calls, eases. Property-secured loans run from $20,000 to $5,000,000; cash-flow options are typically $5,000 to $500,000. If a director offers personal property as security, independent legal advice is essential. And if the business can’t recover, borrowing isn’t the answer; a licensed insolvency practitioner is.

An illustrative example

Illustrative only. Not a real client and not an offer.

The two directors of a Hutt Valley manufacturing company owed IRD about $280,000, including $70,000 of PAYE, after a major customer went into receivership. Both had guaranteed the factory lease and plant finance, and one had an overdrawn current account of about $55,000. Liquidation would have triggered the guarantees, put the current account in play and left the PAYE history under scrutiny. Their accountant confirmed the business was viable with replacement customers already signed. They cleared the PAYE first with a cash-flow loan, then used a property-secured loan to pay the rest of the IRD balance, minuted the decisions and the advice they’d received, and agreed a plan to bring the current account back to zero over two years.

Protect the company, and yourself

If you’re a director worried that your company’s tax debt is becoming personal, talk to us today. There’s no credit check to enquire, your details aren’t shared with other lenders, and a real person will tell you honestly whether clearing the debt now is realistic. Please be accurate about PAYE, GST, guarantees and your current account, so the answer you get is one you can rely on.